COLLIERS SEMI‐ANNUAL OFFICE | | RESEARCH | H2 2019 | 28 JANUARY 2020

Ashish Varanasi HYDERABAD OFFICE DEMAND HITS NEW PEAK IN 2019 Asst Manager | Research | Hyderabad +91 91 4803 8931 [email protected]

2020–24 Summary & H2 2019 Full Year 2020 Annual Average

Recommendations > During 2020, we expect gross absorption to During 2019, gross leasing in be similar to that of 2019, led by ongoing expansion and pre‐commitments of Hyderabad reached a record Demand technology occupiers. 4.9 mn sq ft 9.5 mn sq ft 10.5 mn sq ft high, pushing the city to second‐ place nationally*, in terms of demand. The surge in demand > From 2020‐2024, we expect a new supply of around 88.0 million sq feet (8.2 million sq was led by technology occupiers metres), which should double the office and flexible workspace operators. Supply stock of the city. 3.4 mn sq ft 19.7 mn sq ft 17.7 mn sq ft H2 2019 saw growth of 8.0% in gross leasing activity, as compared to H1 2019. Annual Average HOH / YOY / Growth 2019–24 / > We recommend fintech, End H2 End 2020 End 2024 consulting and analytics > Huge upcoming supply should soften the occupiers who are looking for rental growth by end of 2024. Hence, we 3.6% 2.1% 2.1% competitive rentals to look at estimate a slower rental CAGR of 2.2% for Nanakramguda and the period 2020‐24, compared to 3.6% Rent during 2015‐19. INR47.5 INR48.5 INR52.5 micro‐markets for office space. 2.5pp 10.4pp 3.9pp > We expect the infusion of new supply over > We recommend developers to 2020‐2024 to push up vacancy levels to start planning futuristic 26.4% by end‐2024. amenities focusing on Vacancy 6.7% 17.1% 26.4% wellness, to help differentiate their projects in the wake of huge influx of supply over the Source: Colliers International Note: Demand represents gross leasing; 1 sq m = 10.76 sq ft; pp: percentage point; USD1 = INR71.2 as on 24st December 2019 next five years. *Among top seven cities in namely Bengaluru, Chennai, Delhi‐NCR, Hyderabad, Kolkata, Mumbai and Pune. COLLIERS SEMI‐ANNUAL OFFICE | HYDERABAD | RESEARCH OFFICE | HYDERABAD | RESEARCH | H2 2019 | 14 JANUARY 2020 | H2 2019 | 28 JANUARY 2020

BUOYANT LEASING MOMENTUM TO CONTINUE OVER 2020‐2024 During 2019, gross leasing in Hyderabad touched a new peak of 9.5 million In the next five years (2020‐2024), we project annual average gross absorption sq feet (882,900 sq metres), registering a 39% growth from 2018. During of 10.5 million sq feet (975,900 sq metres), surpassing the preceding five years 2019, traction from key occupiers have placed Hyderabad as the second by 66%. We believe that business‐friendly policies from the state such as the most preferred office destination in India*, with a share of around 18% of ICT (information and communication technology) policy framework5 can offer total gross pan‐Indian leasing volume. incentives to encourage expansion of IT firms. This, along with robust This new peak in office demand is driven by increased expansion, as well as infrastructure should propel occupiers’ interest in Hyderabad. new entrants from the technology and flexible workspace sectors. During Hyderabad, gross effective rental values, Q4 2019 the year, information technology & business process management (IT‐BPM) and flexible workspace occupiers accounted for 51% and 32% of take‐up, respectively. Furthermore, leasing by flexible workspace players grew four‐ fold from 2018. QOQ YOY Q4 2019 Q4 2019 Change Change Example of a flexible workspace in a modern loft office (INR psf pm) (USD psf pm) (%) (%)

CBD1 50.0 – 60.0 0.7 – 0.8 0.0 0.0

Off CBD2 45.0 – 50.0 0.6– 0.7 0.0 5.3

SBD3 65.0 – 85.0 0.9 – 1.2 0.0 15.4

PBD4 25.0 – 35.0 0.3 – 0.5 0.0 0.0

During 2020, we expect Hyderabad to continue strong leasing momentum Source: Colliers International on the back of 4.0 million sq feet (371,747 sq metres) of pre‐commitments Note: Indicative Grade A rentals, includes both Non IT and IT‐ITeS buildings USD1 = INR71.2 as on 24th December, 2019 and ongoing expansion strategies from technology giants. In addition to the pre‐commitments, technology occupiers are looking for built‐to‐suit (BTS) 1Central Business District includes micro‐markets such as Road No.1, 2, 10 and 12 2Off Central Business District includes micro‐market such as , options in Secondary Business Districts (SBDs). During 2020‐2024, we expect 3Secondary Business District includes micro‐markets such as including HITEC City, , Hyderabad to witness large BTS transactions (totalling more than 1.0 million Nanakramguda, Manikondaand , sq feet) from occupiers such as Qualcomm, Uber, Oracle and Cognizant, 4Peripheral Business District includes micro‐markets such as Pocharam, Uppal and 5https://www.telangana.gov.in/PDFDocuments/ICT‐Policy‐Framework‐2016.pdf similar to those of Amazon and Deloitte in 2019. *Among top seven cities in India namely Bengaluru, Chennai, Delhi‐NCR, Hyderabad, Kolkata, Mumbai and Pune.

2 COLLIERS SEMI‐ANNUAL OFFICE | HYDERABAD | RESEARCH OFFICE | HYDERABAD | RESEARCH | H2 2019 | 14 JANUARY 2020 | H2 2019 | 28 JANUARY 2020

Hyderabad, rental trend 2013‐2024F NEW SUPPLY FROM 2020‐2024 TO LHS INR psf pm RHS USD psf pm 60.0 1.0 DOUBLE THE EXISTING STOCK 0.8 40.0 0.6 In H2 2019, despite demand exceeding new supply the vacancy levels increased as some occupiers in the financial district vacated their space. 0.4 20.0 Hence, the vacancy levels increased from 4.2% in H1 2019 to 6.7% at the 0.2 end of 2019. 0.0 0.0 The year 2019 saw new supply of 11.5 million sq feet (1.1 million sq metres), 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F registering a 51% growth from 2018. Moreover, 2020 supply is scheduled at Source: Colliers International 19.7 million sq feet (1.7 million sq metres). We expect the new supply to push the vacancy levels to 17.1% by end of 2020. Hyderabad, gross office absorption (million sq ft) During 2020‐2024, we project about 88.0 million sq feet (8.1 million sq 10.0 metres) of new supply, inflating the city’s stock by around 136%. Around 97% of the upcoming supply over 2020‐2024 is concentrated in the SBD and 8.0 the remaining share is in the Peripheral Business District (PBD) which 6.0 includes Pocharam and Shamshabad. SBD comprises HITEC City, and the 4.0 Gachibowli and Kokapet micro‐markets, which are the most‐sought after IT‐ BPM corridors of the city. These micro‐markets accounts for close to 80% of 2.0 the city’s operating stock. 0.0 Despite buoyant leasing momentum, we expect huge upcoming supply to 2013 2014 2015 2016 2017 2018 2019 soften the rental growth rate. During 2020‐2024, we expect rentals to Source: Colliers International register a moderate CAGR of 2.0%, compared to 2015‐2019 which witnessed Hyderabad, major leasing transactions, 2019 a CAGR of 3.6%. However, we note that developers are turning cautious, as they are looking for pre‐commitments from occupiers to complete their Client Building Name Area (sq ft) Location projects. JP Morgan Chase Knowledge City 850,000 SBD Over the next five years, we believe factors such as improved infrastructure, availability of talent, and competitive rents should help drive occupier ANSR Consulting Laxmi Infobahn 800,000 SBD demand in Hyderabad. We believe these factors should open the city to a Google Intelli City 600,000 SBD new stream of occupiers such as fintech, engineering, manufacturing, telecom, media and advertisement occupiers. Simpliwork Twitza 350,000 SBD

Capgemini Laxmi Infobahn 330,000 SBD

Source: Colliers International Note: All figures are based on market information as of 24th December 2019

3 Primary Author: For further information, please contact:

Ashish Varanasi Arpit Mehrotra Assistant Manager | Research | Hyderabad Managing Director | Office Services | South India +91 91 4803 8931 +91 99 6603 0144 [email protected] [email protected]

Kishore V Senior Associate Director | Office Services | Hyderabad [email protected]

Megha Maan Senior Associate Director | Research | India +91 96 6718 8334 [email protected]

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